Customer Premises Equipment (CPE) is the
stuff at the end of the telephone network that is attached to the
network. It could be a modem or it could be as simple as a plastic
scoop used to help make telephone conversations private.

Prior to the proceedings discussed on this
page, Ma Bell blocked anyone from attaching anything to its
network. [Jordaphone] [Hush a Phone] [Carterfone] Recall historically that Ma Bell started with Alexander Graham Bell's patent of CPE, the
telephone,
and not a patent for a telephone network or service. Ma Bell's business plan was to sell end-to-end service; Ma Bell
would argue that "foreign" devices would harm the network (but then turn
around and market the same device at a significantly increased
price). In North Carolina, it is reported, you could not even
place a cover over the telephone directory book without AT&T claiming that it would harm the
network! [Alven]

There are two important regulatory
evolutions with regard to CPE:

The ability of an individual to attach
the CPE of their choice to the network; and

On broadband Interet networks, the ability of the end users to attach the device of their choice to the network is defined by the FCC's Open Internet rules (and they are different for wireline networks versus wireless networks).

A new regulatory issue has recently emerged
in the context of Network Neutrality concerning whether subscribers, particularly wireless subscribers, can attach the CPE of their choice to wireless
telecommunications networks. Reportedly, in the United States
carriers lock their systems so that only their handsets can be used
where in Europe subscribers simply need to switch SIM cards in order to
switch handsets - and therefore the handset market is far more
competitive. SKYPE has petitioned the FCC
to apply Part 68 to wireless networks.

Background

"In the 1940’s and 1950’s, the FCC had repeatedly supported prohibitions against any “foreign attachments,” e.g., the Jordaphone (a prototype of today’s answering machine) and the Hush-A-Phone (a small plastic device snapped onto the mouthpiece to provide privacy in crowded office environments).82 The Court of Appeals reversed the FCC’s Hush-A-Phone decision, stating: “The mere fact that the telephone companies can provide a rival device would seem a poor reason for disregarding Hush-A-Phone’s value in assuring a quiet line.”83 Next up was the Carterfone, a device that linked mobile radio to the landline network.84 From 1959 to 1966, Carter Electronics had produced 4500 of these devices and sold 3500 devices to dealers. AT&T filed tariffs prohibiting their use." [Ismail p 13]

Hush a Phone

The Hush a Phone was a scoop like thinfoneg that
was attached to a telephone handset so that the speaker could talk
softly into the phone and not be heard by others. It was a non electric
attachment. Hush a phone had been in business since 1920. [Hush a
Phone ad][Picture
of a Hush a Phone]

In the late 1940s, an AT&T lawyer saw the Hush a Phone in a
store window, and decided to sue. AT&T, through its tariffs,
refused to allow anyone to attach anything to their network without
their permission. AT&T brought suit
before the FCC, which agreed that the
Hush a Phone posed a technical interference with the network. [Huber (referring to this as probably the Commission's "most comical order")]

Hush a Phone was "Perhaps [the FCC's] most comical order, revealing how a regulatory mind-set can sometimes overwhelm common sense." Michael K. Kellogg, John Thorne, and Peter W. Huber, Federal Telecommunications Law (1992) at 502.

Hush-a-Phone decided to take a then-unusual
step, and appeal the FCC decision to DC Circuit Court. The court
reversed the FCC, stating that AT&T's restrictive tariffs were an
"unwarranted interference with the telephone subscriber's right
reasonably to use his telephone in ways which are privately beneficial
without being publicly detrimental." [Hush a Phone v FCC, 238 F2d 266
(1956)]

While Hush-a-Phone won, all that was
permitted at this point was the attachment of non-electric devices.

Hush a Phone
Corporation v US, 238 F.2d 266
(DC Cir. 1956): "The question, in the final analysis, is whether the
Commission possesses enough control over the subscriber's use of his telephone to authorize the telephone company to prevent him from
conversing in comparatively low and distorted tones. It would seem
that, although the Commission has no such control in general, there is
asserted a right to prevent the subscriber from achieving such tones by
the aid of a device other than his own body. Thus, intervenors do not
challenge the subscriber's right to seek privacy.
They say only that he should achieve it by cupping his hand between the
transmitter and his mouth and speaking in a low voice into this
makeshift muffler. This substitute, we note, is not less likely to
impair intelligibility than the Hush-A-Phone itself, for the Commission
has found that 'whenever an enclosure is placed around the mouth of a
person an intensification of frequencies below approximately 500 cycles
occurs, and if the intensification is too great, a distortion or
blasting effect results in the transmitter.' In both instances, the
party at the other end of the line hears a comparatively muted and
distorted tone because the subscriber has chosen to use his telephone
in a way that minimizes the risk of being overheard. In neither case is
anyone other than the two parties to the conversation affected. To say
that a telephone subscriber may produce the result in question by
cupping his hand and speaking into it, but may not do so by using a
device which leaves his hand free to write or do whatever else he
wishes, is neither just nor reasonable. The intervenors' tariffs, under
the Commission's decision, are in unwarranted interference with the
telephone subscriber's right reasonably to use his telephone in ways
which are privately beneficial without being publicly detrimental.
Prescribing what changes should be made in the tariffs to render them
'just, fair, and reasonable' and determining what orders may be
required to prohibit violation of subscribers' rights thereunder are
functions entrusted to the Commission."

Carterfone

At about the same time the
Commission launched its first Computer Inquiry,
it released a short order addressing the complaint of Thomas F. Carter
and his company, the Carter Electronics Corporation, against AT&T. [Carterfone] In 1959, Carter invented a device,
which he named for himself, that permitted users of mobile radio systems to interconnect their landline telephone with the radio system
to permit mobile and fixed users to communicate with each other. [Picture
of a Carterfone]AT&T advised its customers that
the Carterfone ,
if used in conjunction with an AT&T telephone, would subject the end user to penalties pursuant to
AT&T's FCC tariff number 132, which provided that:

No equipment, apparatus, circuit
or device not furnished by the telephone company shall be attached to
or connected with the facilities furnished by the telephone company,
whether physically, by induction or otherwise ....

Carter
filed a private antitrust suit against AT&T, and the District Court
referred the matter in 1966 to the FCC.

Before the FCC, AT&T again failed to demonstrate how the competitive CPE would harm the network. The
Commission concluded that AT&T's tariff was unreasonable and
discriminatory and ordered the restrictive tariff provisions stricken. [1968 Order] The Commission was
troubled by the tariff provision that would have permitted end users to
install AT&T-manufactured equipment with exactly the same
functionality offered by the Carterfone, but not the Carterfone itself.
The Commission determined that a customer desiring to improve the
functionality of the telephone network by interconnecting a piece of
equipment not manufactured by the phone company should be permitted to
do so, so long as that equipment does not harm the network. As stated by Huber, Kellogg, and Thorne, "Unvarnished claims of threatened harm to the network would no longer suffice;" from here out, AT&T would have to demonstrate specific harm to prohibit competitive CPE. The Commission also rejected AT&T's arguments that opening the network to competitive CPE would have adverse economic impact on AT&T's telephone service.

Part 68

“Today, the benefits of competition in the CPE market are tangible. Consumers can buy telephones of all shapes, sizes and colors with a bewildering array of features and functions. They can buy telephones with built-in answering machines, telephones with memory, telephones with speed dialing, and cordless telephones.”

“Since deregulation, prices for this equipment have fallen, and as prices declined, sales increased. Sales of cordless telephones, for example, increased from approximately 4 million units in 1985 to 9 million units in 1992.” - Reed E. Hundt, Statement, Committee on Commerce, Science, and Transp., U.S Senate, February 23, 1994.

The
principle of consumer usage of non-telephone company manufactured
equipment with the public switched telephone network, outlined by the
Commission in Carterfone, would later be codified as Part
68 of the FCC's rules. In restraining the boundaries of AT&T market power and opening the network to competition, the FCC believed that it was advancing the public interest.

[W]e find the interconnect competitive marketplace has been characterized by innovation on the part of both interconnect and telephone companies, thereby affording the public a wide range of choices regarding the terminal device or private communications system which best serves their needs. Benefits include availability of new equipment features, improved maintenance, and reliability, improved installation features including ease of making changes, competitive sources of supply, option of leasing or owning, and competitive pricing and payment options. Although it is difficult to predict future innovative developments, because so much is dependent on new product lines and new marketing strategies adopted by the telephone carriers in response to competition, it appears likely that the public will continue to benefit from the competitive interconnect marketplace in terms of innovation in the immediate future [1976 Report para 246]

Part 68 was first adopted in 1975 as part of the Commission's WATS
rulemaking,[WATS] in response to telephone company
slowness in modifying tariffs to permit consumers to attach their own
equipment to the public network. Part 68, which addresses
connection of terminal equipment to the public telephone network,[33] permits consumers to connect equipment from any
source to the public network if such equipment fits within the
technical parameters outlined in Part 68. Competitive
manufacturers of equipment were able, by means of the Commission's
equipment registration and certification procedures, to build and
deploy an incredible variety of voice and data equipment for use with
the public network, without seeking prior permission from either the
Commission, or more importantly, the monopoly telephone companies.

Through
Carterfone and Part 68, the Commission opened the door to manufacturers
of devices that interconnected with the telephone network and offered
value-added services and capabilities. Most important for the
growth and development of the Internet, the Commission's deregulation
of customer premises equipment, or CPE, cleared the way for the rapid
deployment of the modem. The modem allows any consumer with a
computer and a telephone line to access data services, requiring no
network alterations by the telephone company. Residential modem
use, in turn, has driven the growth of Internet applications as
consumer use of the Internet has increased. In fact, without Part
68, users of the public switched network would not have been able to
connect their computers and modems to the network, and it is likely
that the Internet would have been unable to develop. [See Wu p 9]

As
the application of Moore's law to computer
processing speeds witnessed an exponential growth in computing
capabilities, the modem followed suit. Analog modem speeds rose
from 300 baud to 28.8 kilobits/second, and then
to today's nearly standard 56 kilobits / second. Digital
modems and codecs, using such technologies
as digital subscriber line (DSL), promise
multiple increases in speed that will create demand for even more
innovative Internet-based resources and tools. As a result,
consumers will continue to be exposed to an endless variety of
Internet-based applications that meet their increased bandwidth
capabilities.

The
Carterfone decision enabled consumers to purchase modems from countless
sources, to install and use the modem without permission from the
telephone company, and to use these modems to take advantage of an
array of data services offered by a diverse assortment of service
providers over their home telephone service. Without easy and
inexpensive consumer access to modems, the Internet would not have
become the global medium that it is today.

Marconi

The Marconi company refused to communicate with radio stations that were not outfitted with Marconi equipment. This resulted in the US Navy Department, then in charge of US radio communications, to adopt a policy against permitting installations of radio stations that refused such interconnection.

"Early in 1902 an incident occurred which caused the German Government to take official cognizance of the situation. Prince Henry of Prussia, brother of the German Kaiser, was returning to Germany, in the S.S. Deutschland , after a visit to the United States. Soon after sailing, he desired to send President Roosevelt a radio message thanking him for the numerous honors and courtesies which had been accorded him. The Deutschland transmitted this message to the Marconi station at Nantucket, but that station refused to accept it because the ship was fitted with Slaby-Arco radio equipment. The irate Prince brought the matter to the attention of his brother. Kaiser Wilhelm thereupon instructed his government to initiate action in an attempt to establish international control over radio communications. [Howeth] The US Navy, with jurisdiction over American radio at that time, adopted the policy of preventing the installation of radio stations which would block the receipt of messages.

Law

47
USF s 153(14) Definition: "The term “customer premises equipment”
means equipment employed on the
premises of a person (other than a carrier) to originate, route, or
terminate telecommunications."

Taken from Modification of Final Judgment§ IV(E), reprinted in United States v. AT&T, 552 FSupp 131, 228 (DDC 1982) (CPE is "equipment employed on the premises of a person (other than a carrier) to originate, route, or terminate telecommunications, but [it] does not include equipment used to multiplex, maintain, or terminate access lines.")

Recent press reports indicate that Apple has declined to approve the Google Voice application for the iPhone and has removed related (and previously approved) third-party applications from the iPhone App Store . In light of pending FCC proceedings regarding wireless open access (RM-11361) and handset exclusivity (RM-11497), we are interested in a more complete understanding of this situation.

To that end, please provide answers to the following questions by close of business on Friday, August 21, 2009.

 Why did Apple reject the Google Voice application for iPhone and remove related third-party applications from its App Store? In addition to Google Voice, which related third-party applications were removed or have been rejected? Please provide the specific name of each application and the contact information for the developer.

 Did Apple act alone, or in consultation with AT&T, in deciding to reject the Google Voice application and related applications? If the latter, please describe the communications between Apple and AT&T in connection with the decision to reject Google Voice. Are there any contractual conditions or non-contractual understandings with AT&T that affected Apple's decision in this matter?

 Does AT&T have any role in the approval of iPhone applications generally (or in certain cases)? If so, under what circumstances, and what role does it play? What roles are specified in the contractual provisions between Apple and AT&T (or any non-contractual understandings) regarding the consideration of particular iPhone applications?

 Please explain any differences between the Google Voice iPhone application and any Voice over Internet Protocol (VoIP) applications that Apple has approved for the iPhone. Are any of the approved VoIP applications allowed to operate on AT&T's 3G network?

 What other applications have been rejected for use on the iPhone and for what reasons? Is there a list of prohibited applications or of categories of applications that is provided to potential vendors/developers? If so, is this posted on the iTunes website or otherwise disclosed to consumers?

 What are the standards for considering and approving iPhone applications? What is the approval process for such applications (timing, reasons for rejection, appeal process, etc.)? What is the percentage of applications that are rejected? What are the major reasons for rejecting an application?

Request for Confidential Treatment. If Apple requests that any information or documents responsive to this letter be treated in a confidential manner, it shall submit, along with all responsive information and documents, a statement in accordance with section 0.459 of the Commission's rules. 47 C.F.R. § 0.459. Requests for confidential treatment must comply with the requirements of section 0.459, including the standards of specificity mandated by section 0.459(b). Accordingly, "blanket" requests for confidentiality of a large set of documents are unacceptable. Pursuant to section 0.459(c), the Bureau will not consider requests that do not comply with the requirements of section 0.459.

Summary: "As the wireless industry matures, consolidation and the relationship between headset manufacturers and carriers are producing market practices that raise substantial questions about whether consumers are receiving the maximum benefits of wireless competition. For example, carriers are beginning aggressively to influence software and product design to the detriment of consumers.

"As the wireless market has matured and wireless handsets have become an integral part of most American's lives, carriers are using their considerable influence over handset design and usage to maintain control over and limit subscribers' right to run software communications application of their choosing. Instead of carrying the subscribers' messages indifferent to content, carriers have exerted more and more control over the way consumers access the mobile Internet. In an effort to prefer their own affiliated services and exclude rivals, carriers have disabled or crippled consumer-friendly features of mobile devices. Carriers are doing so, moreover, in violation of the Commission's Carterfone principle and the strictures of the Commission's original order permitting the bundling of consumer equipment and wireless service. The Commission should act now to enforce Carterfone and unlock the full benefits of wireless price competition and innovation.

"In light of these developments, Skype respectfully requests that the Commission make unmistakably clear that Carterfone will be enforced in the wireless industry, to initiate a proceeding to evaluate wireless carrier practices in light of Carterfone, and to create an industry-led mechanism to ensure that openness of wireless networks. Doing so will ensure both that consumers retain a right to run the applications of their choosing and attach all non harmful devices to the wireless network. Finally, Commission involvement will ensure that carriers cannot use illegitimate network management practices as an excuse for otherwise anti-consumer behavior."

"We determined in Docket No. 19528 and elsewhere that the public benefits from diversity in the supply of terminal equipment and that consumers for this further reason should have the option of furnishing their own terminals, including main stations. Among these benefits as found in Docket No. 20003 (61 FCC2d at 867), are the public's wider range of options as to terminal devices, competitive stimulus to innovation by telephone companies and independent suppliers, the availability of new equipment features, improved maintenance and reliability, improved installation features including ease of making changes, competitive sources of supply, the option of leasing or owning equipment, and competitive pricing and payment options. . . . We remain of the opinion that the proven and reasonably anticipated public benefits from the competitive supply of terminal equipment, including primary instruments, take precedence over the considerations urged by the telephone industry. If anything, this judgment is the more firm in light of potential developments in home and small business terminals and the heightened desirability of protecting the consumers' freedom of options in such circumstances. " Para 48

Proposals for New or Revised Classes of Interstate and Foreign Message Tolls Telephone Service (MTS) and Wide Area Telephone Service (WATS), First Report and Order, 56 FCC 2d 593 (1975) (Part 68).

Proposals for New or Revised Classes of Interstate and Foreign Message Tolls Telephone Service (MTS) and Wide Area Telephone Service (WATS), Memorandum Opinion and Order, 58 FCC 2d 716 (1976).

AT&T Co's Proposed Tariff Revisions in Tariff FCC No 263 Exempting Mebane Home Telephone Co of North Carolina from the Obligation to Afford Customers the Option of Interconnecting Customer Provided Equipment to Mebane's Facilities, Memorandum Opinion and Order, 53 FCC2d 473 (1975) (recognizing that CPE can include substitutes for telephones; that the only relevant question is whether such CPE would harm the network).

AT&T Foreign Attachment Tariff Revisions in AT&T Tariff FCC Nos 263, 260 and 259, Memorandum Opinion and Order, 15 FCC2d 605 (1968) (upholding AT&T tariff that required a "protective connecting arrangement" between competitive CPE and the telephone network, and holding that Carterfone did not include telephones themselves were were part of the telephone network)

Hush-a-Phone Corp and Harry C Tuttle, Complainants, American Telephone and Telegraph Co., Defendants, Decision, 20 FCC 391 (1955) ("the unrestricted use of foreign attachments . . . may result in impairment to the quality and efficiency of telephone service, damage to telephone plant and facilities, or injury to telephone company personnel" ")

Hush-a-Phone Corp and Harry C Tuttle, Complainants, American Telephone and Telegraph Co., Defendants, Decision and Order on Remand, 22 FCC 112 (1957) (stating that carriers would have to distinguish in tariffs between harmful and harmless interference)

Issue was attachment to answering
machines to network :: AT&T reportedly made no showing of harm to
the network. FCC punted to the states ~99% of telephone calls
at that time were intrastate. See Jurisdiction. Jordaphone was distinguished from recording devices in that the Jordaphone was involved in call setup, both opening and closing a circuit.

AT&T Tariff in this case: "No equipment, apparatus, circuit or device not furnished by the Telephone Company shall be attached to or connected with the facilities furnished by the Telephone Company, whether physically, by induction or otherwise, except as provided in this tariff. In case any such unauthorized attachment or connection is made, the Telephone Company shall have the right to remove or disconnect the same; or to suspend the service during the continuance of said attachment or connection; or to terminate the service."

Use of Recording Devices in Connection with Telephone Services, Report to the Commission, 11 FCC 1033 (1947) (striking down AT&T tariffs that prohibited the attachment of telephone call recording devices on the ground that the devices would not cause "any perceptible effect on the functioning of the telephone apparatus or the quality of the telephone service")

Pastor v AT&T, 76 FSupp 781 (SDNY 1940)

Inventor of autodialor, offered to license patent to AT&T but AT&T declined, with no other access to the network inventor sued claiming an antitrust violation. The district court rule against Pastor and indicated that further legal actions should be brought before regulatory commissions.

Other Govt Activity

Statement of
Reed E. Hundt Chairman
Federal Communications Commission
Before the
Committee on Commerce, Science, and Transportation
United States Senate
on
S. 1822, the "Communications Act of 1994" and
"Telecommunications Equipment Research and
Manufacturing Competition Act of 1994"
February 23, 1994

The Carterfone principle has had enormous consequences not only in telecommunications policy, but for the economic prosperity of the United States. The ability to build a device to a standardized network interface (the phone plug, known as an RJ-11) gave birth to a new market in home and business telecommunications equipment. That led, predictably, to competition in the phone market. But it also led, unpredictably, to other innovations. Those have included mass consumer versions of the fax machine, the answering machine, and perhaps most importantly, the modem. Arguably, the FCC's rules on network attachments - now known as the Part 68 rules - have been the most successful in its history. The freedom to buy and attach a modem became the anchor of the mass popularization of the Internet in the 1990s. As one observer put it, without Carterfone, the development and broad popularlization of the Internet also would not have occurred as it did. The key point of Carterfone is that it eliminated an innovation bottleneck in the form of the phone company. - page 9.